Question 2 hurts business and exacerbates disparities in education funding

Maine’s citizen’s initiative process promotes civic engagement and gives every day Mainers a direct participatory role in our democracy. Over the years, however, this process has been abused by out of state plutocrats who target Maine and dump unfathomable amounts of cash into these races from start to finish. In this regard, consider the 2016 cycle an utter onslaught.

Among the substandard ballot initiatives this cycle is Question 2, which intends to impose a three percent surtax on incomes earned over $200,000 to fund K-12 public education. This initiative, its supporters claim, will end funding disparities between school districts and provide property tax relief, despite the underwhelming evidence to support such assertions.

If Question 2 earns passage, this initiative will have a resounding negative impact on our economy and further exacerbate the inequalities in K-12 education funding.

These effects can be seen in the Maine Heritage Policy Center’s (MHPC) The Wrong Choice for ME publication. The report outlines a number of harmful consequences that will result from Question 2’s enactment and debunks a plethora of its supporters’ talking points.

While Question 2 sounds well-intentioned, its proponents have pushed a false narrative. Among these falsehoods is that Question 2 will provide “educational equality regardless of zip code.” This could not be more inaccurate.

In reality, the funds generated by Question 2 would heavily favor wealthy school districts, while seven communities will actually lose funding and handfuls of struggling communities would receive zero additional funding.

The Essential Programs and Services (EPS) formula the state uses to determine what each district receives in funding only uses property taxes as a measure of a district’s financial capacity. The flaw in this is that many Maine towns have high property values but still live in depressed economic conditions.

Towns with high property values are considered able to pay for more of their school budgets, while towns with low property values receive more aid from the state. Therefore, low-income, property rich towns are asked to pay more for their educational expenses than high-income, property rich towns.

Due to a 2004 ballot initiative, Maine is required to pay 55 percent of EPS, but this has yet to occur. Often legislators will appropriate education funds to other areas of government. Revenues generated by Question 2 are intended to make up for these shortcomings. However, the vast majority of towns that would receive additional funding do not need help in the first place, as they already overspend the EPS formula.

Under Question 2, the top 25 highest receiving districts will get roughly $69.5 million. The next 25 will get $32.7 million, and the rest of the state, which includes 196 districts, will get only $27.8 million.

Meanwhile, seven communities will lose funding and another 123 communities will get no additional funding.

Fourteen towns will receive a total of $22 million under Question 2, including Falmouth, Cape Elizabeth and Yarmouth, which all have median household incomes over $70,000.

Among those receiving zero are towns like Upton, Jonesport (which will actually lose funding) and Greenville, which all have median household incomes below the state average and are in desperate need of additional help.

Along with exacerbated education disparities, Question 2 will hurt business, cost thousands of jobs and result in tax flight. With an additional three percent surtax, the income tax rate for Maine’s top earners would jump to 10.15, a 42 percent increase. This would become the second highest rate in the nation and the highest rate in Maine history.

These changes would increase the tax burden, reducing saving and capital investments. This makes Maine a less attractive destination for local and out-of-state businesses. They also pressure Maine’s top earners to move to tax-friendly states like neighboring New Hampshire or Florida, where they will retain more of their income.

MHPC also used a comprehensive economic model developed by the Beacon Hill Institute to estimate that Question 2 will cost Maine 4,050 private sector jobs by 2021 and reduce real disposable incomes by $293 million.

Additionally, some of Maine’s small businesses would be affected the worst, as this income tax hike will result in these small businesses paying a higher tax than corporations. Many small businesses and family farms operate as pass-through entities, which do not face corporate income tax. Instead, their owners are taxed regularly under the individual income tax. Question 2 will affect 11,450 pass-through filers, totaling $1.4 billion in adjusted gross income.

Combined, these changes will slow Maine’s recovery from the 2008 recession, reduce employment growth and deter family and home-based businesses from relocating to Maine.

Funding will become more skewed than ever, and thousands of our neighbors will be left in the dark while we further subsidize the wealthiest school districts.